1 Growth Stock Down 36% to Buy Hand Over Fist Before It's Too Late

Shares of Confluent (NASDAQ: CFLT) started 2024 on a positive note. They shot up nearly 50% in the first two months of 2024. But things have since been going downhill for the data streaming provider, as it has fallen 36% from its year-to-date high.

Confluent stock is now down for the year, underperforming the Nasdaq-100 Technology Sector index. The stock received another hammering following the release of its second-quarter results on July 31, dropping 18% in a single session.

However, a closer look at Confluent's quarterly performance and the end-market opportunity that it's sitting on indicates buying this tech stock could turn out to be a smart long-term move.

Confluent is growing steadily despite headwinds

Confluent reported Q2 revenue of $235 million, up 24% year over year and exceeding management's guidance of $229 million to $230 million. The company also reported $0.06 per share in adjusted earnings, also ahead of the $0.04 per share to $0.05 per share guidance.

The company provides a cloud-based data streaming platform that allows its customers to connect and process their data streams in real time. This is opposed to the traditional method of storing data at rest in silos and batch processing it later on.

However, customers using Confluent's real-time platform get more value out of their data for various applications such as dynamic pricing, shipment tracking, customer service, the Internet of Things, and artificial intelligence , among others. Management estimates its total addressable market was worth an estimated $60 billion in 2022, and it could grow to an estimated $100 billion by 2025.

So, the company is early in tapping this massive revenue opportunity, considering analysts expect full-year revenue to hit $955 million this year, up 23%. More importantly, Confluent has been building a robust customer base and is also winning a bigger share of their wallets, even during what management described in the earnings call as "a continuing volatile macro environment."

This is evident from the fact its overall customer base increased 13% year over year to 5,440. However, the number of customers with annual recurring revenue (ARR) of more than $1 million increased at a faster pace of 20%. Meanwhile, customers with more than $100,000 in ARR increased 14%.

Confluent's ARR refers to the amount of contractually committed revenue it's set to receive over the next 12 months from its platform customers. It also refers to the revenue Confluent expects to generate from customers using its cloud solutions over the next year, based on their usage in the past three months. So, the increase in the ARR of its larger customers bodes well for the company as it points toward a healthier revenue pipeline.

The improved customer spending is also enabling margin gains for Confluent. The company reported a non- GAAP operating margin of 1% in Q2, compared to a negative reading of 9% in the year-ago period. In all, Confluent can improve both its top and bottom lines going forward, and that should support the stock in the long run.

Healthy gains on the horizon

Confluent is expecting its 2024 earnings to land at $0.20 per share. That would be a huge improvement over the $0.04 per share non-GAAP earnings it reported in 2023. More importantly, analysts are forecasting a significant bottom-line acceleration in 2025 and 2026 as well, despite downward adjustments to their estimates of late.

Data by YCharts .

Such outstanding earnings growth should deliver strong returns for Confluent, which is why investors looking to add a growth stock to their portfolios should consider buying it before shares recover from their recent sell-off.

Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Confluent. The Motley Fool has a disclosure policy .